Journal of Economic Perspectives: Vol. 13 No. 4 (Fall 1999)

On the Need for an International Lender of Last Resort

Article Citation

Fischer, Stanley. 1999. "On the Need for an International Lender of Last Resort."
Journal of Economic Perspectives,
13(4): 85-104.

DOI: 10.1257/jep.13.4.85

Abstract

Is there a useful function for an international lender of last resort (ILLR)--defined as crisis lender and crisis manager? Yes for international capital flows are excessively volatile and contagious, and because an ILLR can help mitigate the effects of this instability. I examine the Bagehot rules, and their applicability in an international context, focusing on the problem of moral hazard. I argue that a critical condition for the successful operation of an ILLR, a role that is to an important extent played by the IMF, is to ensure private sector involvement in the resolution of emerging market financial crises.